CHENNAI: Sundaram Finance Limited (SFL) has decided to convert its fully owned subsidiary Sundaram Home Finance Ltd. into a joint venture with Union de Crédit pour le Bâtiment (UCB), a wholly-owned subsidiary of BNP Paribas.

This follows an agreement between SFL and UCB for a strategic partnership in the Indian housing finance arena.

The agreement will see UCB acquire a 49.9 per cent stake in Sundaram Home Finance Limited (SHFL) for a total consideration of Rs. 196.98 crore.

The investment will be made through a combination of new issue of equity shares by SHFL and purchase of existing equity shares. SFL will retain a 50.1 per cent equity stake in the company. Following the agreement, the joint venture will take a new name Sundaram BNP Paribas Home Finance Limited.

Fresh equity to UCB

In October 2005, SFL, it may be recalled, had sold 49.90 per cent stake in its wholly owned outfit Sundaram Asset Management Company Ltd. to BNP Paribas Asset Management for a consideration of Rs. 100.38 crore. Following this, Sundaram Asset Management Company was renamed as Sundaram BNP Paribas Asset Management Company Ltd.

T. T. Srinivasaraghavan, Managing Director of SFL, told The Hindu that SFL would sell 43 per cent of its stake for a consideration of Rs. 147 crore. SHFL would issue fresh equity to UCB for around Rs. 50 crore. Asked on the usage agenda for money coming through sale of shares in SHFL, he said, "Our business (truck finance) has a lot of hunger for funds."

Subject to relevant approvals from the Reserve Bank of India and the National Housing Bank (NHB), the transaction is expected to be complete in three months. Mr. Srinivasaraghavan said both SFL and UCB would have equal number of nominees on the board of the joint venture.

To a question, he said, "we want to maintain control." It is, therefore, no coincidence that SFL has chosen to retain 50.1 per cent stake in both the asset management and home finance ventures.

He said though many overseas entities had shown interest in coming in as partners in SHFL, SFL had chosen to go with UCB for some definite reasons. The Sundaram Finance Group had already a running association with BNP Paribas in the asset management company. UCB was chosen since it was a specialised mortgage finance player with years of standing, expertise in risk management and an array of products in its portfolio. "The relationship with UCB is more about the value they bring to the table," he said.

With over Rs. 1,250 crore loan portfolio, SHFL provides a range of housing finance products, largely focusing on retail customers.

Brand strength

"The joint venture will combine the strength of the Sundaram Finance brand, the extensive distribution reach and retail credit management expertise with the specialised housing finance skills of UCB and the global brand strength of BNP Paribas," the release quoted S. Viji, Chairman of SFL, as saying.

Laurent Chouraki, CEO of UCB-Private Mortgage business line of BNP Paribas, said, "The mortgage market in India is growing fast, driven by the important housing needs of the Indian population."

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